Company loses appeal against allegations it failed to pay wages

Court rules in favour of employees and that arbitration agreement was invalid

Company loses appeal against allegations it failed to pay wages

An employer has lost an appeal in the California Court of Appeal for the Second District after it was ruled that two employees did not sign an arbitration agreement and terms regarding a third employee were substantively unconscionable (primarily one-sided in the employer’s favour).

Juan Navas, Martha Herrera Lopez, and Benjamin Hernandez Ramos – the plaintiffs in the case of Navas et al. v. Fresh Venture Foods, LLC – and other employees filed a class action lawsuit against the defendant, Fresh Venture Foods, LLC.

The plaintiffs alleged that the company failed to pay minimum and overtime wages. They also brought a claim under the Private Attorneys General Act of 2004 (PAGA) for civil penalties or damages for labor law violations on behalf of themselves and other employees.

The company brought a motion to compel arbitration. It claimed that the three plaintiffs signed arbitration agreements consenting to arbitrate their individual claims against the employer and giving up the right to represent others in litigation or to participate in class actions.

The trial court ruled in the plaintiffs’ favor. It found that the company failed to prove that Lopez and Ramos entered into arbitration agreements and that the agreement that Navas signed was procedurally and substantively unconscionable.

The employer appealed. The California Court of Appeal for the Second District agreed with the trial court’s decision.

First, the appellate court found that Ramos and Lopez did not sign the arbitration agreement. Both employees alleged that they did not see the arbitration document and did not recognize the signatures as their own.

Second, the Court of Appeal ruled that the arbitration agreement with Navas was both procedurally and substantively unconscionable. Regarding procedural unconscionability, the appellate court found that the employer used its “superior bargaining power” to make the provisions favorable to itself before they gave it to Navas on a take-it-or-leave-it basis.

As for substantive unconscionability, the Court of Appeal determined that the agreement’s terms, which described the type of claims covered by arbitration, were primarily one-sided in the employer’s favor.

The employer one-sidedly declared a right to forfeit individual PAGA claims without first explaining the meaning of an individual PAGA claim to the Spanish-speaking employee and without getting the employee’s consent to waive the right to file an individual PAGA claim in court, the appellate court said.

While employees were free to forgo the option of pursuing a PAGA claim, it would be against public policy for arbitration agreements to deprive employees of this option before a dispute even arose, the Court of Appeal added.

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